SEMI ANNUAL REPORT 2017 - SMKHuman Machine Interface (HMI) technology for the realization of Home Automation, and miniature mounting, waterproof and precision molding technologies

Research & Development Center

Touch Panel Division

Functional Components Division

Connection System Division

USB Type-CTM Receptacle

ECHONETLiteTM Adapter (Wired)

“D2 F/G” ResistiveDecorative Film

Touch Panel

Sigfox RF Module“WF923”

LGMCard

SMK CORPORATION

SEMI ANNUAL REPORT

2017For the six months ended September 30, 2017

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1 SEMI ANNUAL REPORT 2017

Millions of yenThousands ofU.S. dollars

Six months ended September 302016



Operating ResultsNet sales ¥ 31,708 ¥ 29,393 $ 260,738Operating income 747 598 5,305 Profit (loss) attributable to owners of parent (1,079) 900 7,984

As of March 312017

As of September 302017


Financial PositionTotal assets ¥ 62,318 ¥ 65,058 $ 577,113Total net assets 31,318 32,228 285,887

Yen U.S. dollars




Per Share DataProfit (loss) attributable to owners of parent Basic ¥ (15.87) ¥ 13.62 $ 0.12Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ￥112.73 = U.S. $1.00.

Net sales

Basic profit attributable to owners of parent per share

Operating income

Total assets

Profit (loss) attributable to owners of parent

Total net assets

Financial HighlightsSMK Corporation and Consolidated Subsidiaries

■ Full year　■ ■ First half

2014 2015 2016 2017Mar.

2017Sep.

34,88132,171

66,23065,796

39,31531,708 29,393

62,971

77,206

Millions of yen

0

30,000

60,000

90,000

15.17 13.62

35.58

■ Full year　■ First half yen

37.94

27.61

2014 2015 2016 2017Mar.

2017Sep.

0

15

30

45

■ Full year　■ ■ First half Millions of yen

2014 2015 2016 2017Mar.

2017Sep.

0

1,000

2,000

3,000

4,000

5,000

1,9882,330

1,125

2,1132,572

747 598630

4,171

65,02967,606

56,235

■ Full year　■ First half Millions of yen

0

20,000

40,000

60,000

80,000

62,31865,058

2014 2015 2016 2017Mar.

2017Sep.

■ Full year　■ ■ First half Millions of yen

2014 2015 2016 2017Mar.

2017Sep.

（1,500）

0

1,500

3,000 2,541

1,893

(1,079)

900

1,6781,982 2,077

1,017

2,678

31,47634,187

0

10,000

20,000

30,000

40,00033,287

■ Full year　■ First half Millions of yen

31,318 32,228

2014 2015 2016 2017Mar.

2017Sep.

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2SEMI ANNUAL REPORT 2017

Yasumitsu IkedaPresident, CEO and COO

We are obliged to you for your continued support and good patronage.

We would like to report on the outline and results of the SMK Group’s businesses for the first half of the 96th fiscal year (from April 1, 2017 to September 30, 2017).

We look forward to your continuing support and encouragement.

November 2017

During the first half of the 96th fiscal year ended September 30, 2017, the global economy remained solid despite heightened geopolitical risk. The Japanese economy maintained moderate growth against the backdrop of recovering corporate earnings and the government’s fiscal spending, remaining in an economic expansion phase.

Under these circumstances, the SMK Group enjoyed steady growth in sales of connectors for the healthcare market, and sales of connectors for rearview cameras in the car electronics market were also solid. However, sales of products such as connectors for smartphones for the Chinese region, remote control units for set-top boxes for the U.S. market and touch panels for car electronics were sluggish partly due to intensified competition with other manufacturers.

Net sales for the first half decreased year on year despite efforts to launch new products proactively. Although initiatives were taken to reduce cost of sales and cut expenses, the sales drop led to a decline in operating profit.

Going forward, the SMK Group will strive to further improve its profitability by increasing productivity and cutting expenses, secure sales in its mainstay markets and increase revenue through new businesses. The SMK Group will not only respond to changes in the existing businesses but also proceed proactively with efforts to expand operations in new markets which are expected to grow in the medium to long term, such as the environment and energy, healthcare, wearable devices and IoT (Internet of Things), and to create new businesses by cooperating with partner companies and promoting Open Innovation.

Although the uncertainty in the business environment is expected to continue going forward, all employees are committed to working together to build a corporate structure that realizes sustainable growth through swift responses to changes in the business environment.

Performance Overview

To Our Shareholders and Investors

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Net sales¥ 29,393

Million

Others¥162 Million

0.6%

Functional ComponentsDivision¥9,939 Million

33.8%

Touch Panel Division¥4,857 Million

16.5%

Connection SystemDivision

¥14,435 Million

49.1%

Sales of connectors in the information and communication markets increased year on year, as sales grew for connectors for tablets of customers in North America although connectors for smartphones struggled due to intensified competition with other connector manufacturers for supply to customers in the Chinese region. Sales of connectors in the car electronics market, which continues to show stable growth, rose steadily mainly for products for rearview cameras, with the accelerating development of car electronics serving as a tailwind. Sales of connectors for the industrial machinery market increased sharply year on year due to continued strong growth in connectors for the healthcare market.

Connection System Division

● Coaxial Connectors● Board to Board Connectors● FPC Connectors● Jacks

Major Products

FPC to Board Connectors “FB-9 Series”Applications:

Smartphones, Tablet PC, other mobile devices

*Others: businesses of other electronic parts, lease, real-estate rental, and worker dispatching undertakings.

Overview of Consolidated Results by Division(April 1, 2017 to September 30, 2017)

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Sales of remote control units, our mainstay products, remained solid for sanitary goods in Japan. However, sales of the products for set-top boxes dropped sharply year on year, affected by a decrease in sales volume to U.S. customers due to increased competition with other manufacturers of remote control units. As for units, sales increased year on year, as sales of automotive camera modules expanded steadily although products for U.S.-bound home equipment fell due to production adjustments by customers. Sales of switches slightly decreased year on year, as sales of switches for smartphones dropped due to order adjustments associated with changeovers to new smartphone models.

Functional Components Division

● Remote Control Units● Wireless Units● Switches● Camera Modules

Major Products

Bluetooth® Smart-supported Standard Voice Remote Control

Applications: Set-Top Box,

Home Network Devices

In the market for touch panels for car navigation systems and automotive center consoles, our mainstay products, the market environment continues to change significantly due to a shift in demand to capacitive models from resistive models. Despite new orders won for capacitive models and orders continuously received for touch panels for the industrial machinery market, such as for machine tools other than those for car electronics and for office equipment, sales of overall touch panels fell year on year because a decline in sales of resistive models was not fully offset.

Touch Panel Division

● Resistive Touch Panels● Capacitive Touch Panels● Optical Touch Panels

Major Products

Capacitive Touch Panel “CapDuo Touch”

Applications: Automotive Center Console,

Factory Automated (FA) Equipment, etc.

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Saving labor, improving efficiency

Managing crop yieldsManaging quality

Agriculture and FisheriesMonitoring water supply and

sewerage systemsDetecting gas leaks

Managing parking lots

Infrastructure

Ensuring securityManaging disaster

preparedness

Offices and Buildings

Ensuring securityManaging home appliances

Monitoring people

Houses and Home Appliances

Home medical equipmentManaging personnel allocation

Increasing work efficiency

Medical Treatment and Nursing Care

Monitoring the indoor environment

Monitoring equipment failures

Factories

SMK’s Activity for IoT MarketSMK Corporation is focusing on developing products and proposing solutions for the Internet of Things (IoT) business, for which demand is expected to expand rapidly going forward.

SMK’s key strengths in the IoT business are hardware and software technologies for network connection, Human Machine Interface (HMI) technology for the realization of Home Automation, and miniature mounting, waterproof and precision molding technologies for device development. SMK is stepping up efforts to meet new communication standards, especially for wireless communication modules.

For differentiation from competitors, SMK promotes Open Innovation and strengthen collaborations beyond the electronic parts industry, with a view to expanding the IoT business.

SMK SolutionsCreating New Values

IP500™ Modules

Sigfox Modules

Topics

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Saving labor, improving efficiency

Managing crop yieldsManaging quality

Agriculture and Fisheries

Realizing traceabilityMonitoring drivers

Increasing work efficiency

Logistics/Distribution

Ensuring securityManaging home appliances

Monitoring people

Houses and Home Appliances

SMK joined the CEATEC JAPAN 2017 Cyber-Physical System (CPS) / Internet of Things (IoT) exhibition held at the Makuhari Messe convention center in Chiba for a four-day run from October 3 to 6.

Centering on the potentially expanding market such as Low Power Wide Area (LPWA)communication for the Internet of Things, SMK showcased Open Innovation activities and Home Automation among others, giving special consideration to allowing visitors to experience them through demonstrations.

SMK demonstrated a wide product lineup of LPWA communication modules and had many visitors recognize SMK’s competitive advantage in and the features of module for IP500TM, a LPWA network standard originated in Germany, which was displayed only by SMK. As a result, SMK’s booth drew far more visitors than the initial target.

SMK Exhibits at CEATEC JAPAN 2017

SMK SolutionsCreating New Values

Bluetooth® low energy Modules

Bluetooth® Smart Modules

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Assets As of March 312017



Current assets

Cash and cash equivalents ¥ 10,011 ¥ 10,890 $ 96,603

Time deposits 106 99 878

Notes and accounts receivable, trade 14,853 16,345 144,992

Allowance for doubtful accounts (48) (49) (435)

Inventories 7,199 7,712 68,411

Deferred tax assets 431 854 7,576

Other current assets 1,719 1,100 9,758

34,274 36,954 327,810

Investments and long-term loans

Investment securities 2,305 2,635 23,374

Long-term loans receivable 117 126 1,118

Asset for retirement benefits 860 921 8,170

Other investments 554 578 5,127

Allowance for doubtful accounts (102) (87) (772)

3,736 4,174 37,027

Property, plant and equipment

Land 7,027 7,044 62,486

Buildings 21,275 21,363 189,506

Machinery and vehicles 22,025 22,395 198,661

Tooling and office furniture 23,494 23,506 208,516

Construction in progress 100 153 1,357

73,923 74,463 660,543

Less-accumulated depreciation (51,953) (52,900) (469,263)

21,970 21,563 191,280

Other assets

Deferred tax assets 487 669 5,935

Intangible assets 1,850 1,696 15,045

2,337 2,366 20,988

Total assets ¥ 62,318 ¥ 65,058 $ 577,113 Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ￥112.73 = U.S. $1.00.

Consolidated Balance SheetsSMK Corporation and Consolidated Subsidiaries

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Liabilities and net assets As of March 312017



Current liabilitiesShort-term loans payable ¥ 13,592 ¥ 14,832 $ 131,571 Notes and accounts payable, trade 6,118 6,438 57,110 Accrued income taxes 647 579 5,136 Accrued bonuses 626 774 6,866 Accrued directors’ and officers’ bonuses 24 ーー

Accounts payable, non-trade 1,407 1,487 13,191 Other current liabilities 1,710 2,034 18,043

24,127 26,145 231,926

Long-term liabilitiesLong-term debt 4,855 4,646 41,214 Deferred tax liabilities 974 1,009 8,951 Accrued directors' and officers' retirement benefits 203 184 1,632

Liability for retirement benefits 54 68 603 Other long-term liabilities 784 775 6,875

6,872 6,684 59,292

Net assetsShareholders' equityCommon stockAuthorized : 195,961,274 sharesIssued : 75,000,000 shares 7,996 7,996 70,931

Capital surplus 12,057 12,057 106,955 Retained earnings 16,614 17,183 152,426 Treasury stock (3,995) (3,998) (35,465)

32,672 33,239 294,855 Accumulated other comprehensive incomeNet unrealized gains (losses) on other securities 348 507 4,497 Net unrealized gains (losses) from hedging instruments (3) (10) (89) Foreign currency translation adjustments (1,976) (1,689) (14,983)

Retirement benefits asset and liability adjustments 263 181 1,606

(1,368) (1,010) (8,959) Non-controlling interests 14 ーー

31,318 32,228 285,887

Total liabilities and net assets ¥ 62,318 ¥ 65,058 $ 577,113

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2016


2017


2017

Profit (loss) ¥ (1,102) ¥ 885 $ 7,851 Other comprehensive income

Net unrealized gains (losses) on other securities (53) 158 1,402 Net unrealized gains (losses) from hedging instruments ー (6) (53) Foreign currency translation adjustments (1,263) 286 2,537 Retirement benefits asset and liability adjustments (54) (81) (719) Total other comprehensive income (1,371) 357 3,167

Comprehensive income ¥ (2,473) ¥ 1,243 $ 11,026 Total comprehensive income attributable to:

Owners of parent ¥ (2,451) ¥ 1,257 $ 11,151 Non-controlling interests (22) (14) (124)



2016


2017


2017

Net sales ¥ 31,708 ¥ 29,393 $ 260,738 Cost of sales 26,036 23,839 211,470 Selling, general and administrative expenses 4,924 4,954 43,946 Operating income 747 598 5,305

Other incomeInterest and dividend income 45 48 426 Rent income 624 614 5,447 Foreign exchange gain, net ー 72 639 Gain on sales of fixed assets 40 41 364 Gain on sales of investment securities 31 ーーGain on redemption of investment securities ー 46 408 Gain on reversal of share subscription rights 20 ーーOther 198 151 1,339

Total other income 961 974 8,640

Other expensesInterest expense 67 55 488 Rent expense 297 280 2,484 Foreign exchange loss, net 2,021 ーー Loss on disposal of fixed assets 136 58 515 Loss on valuation of investment securities ー 178 1,579 Loss on impairment of fixed assets ー 271 2,404 Other 80 54 479

Total other expenses 2,603 899 7,975

Profit (loss) before income taxes (895) 674 5,979 Income taxes

Current 274 380 3,371 Deferred (67) (591) (5,243)

Profit (loss) (1,102) 885 7,851 Loss attributable to non-controlling interests (22) (14) (124) Profit (loss) attributable to owners of parent ¥ (1,079) ¥ 900 $ 7,984

Yen U.S. dollars

Per share dataProfit (loss) attributable to owners of parent Basic ¥ (15.87) ¥ 13.62 $ 0.12

Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ￥112.73 = U.S. $1.00.

Consolidated Statements of IncomeSMK Corporation and Consolidated Subsidiaries

Consolidated Statements of Comprehensive IncomeSMK Corporation and Consolidated Subsidiaries

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2016


2017


2017

Cash flows from operating activitiesProfit (loss) before income taxes ¥ (895) ¥ 674 $ 5,979 Depreciation and amortization 2,136 2,085 18,496 Loss on impairment of fixed assets ー 271 2,404 Amortization of goodwill 52 ーーIncrease (decrease) in accrued bonuses (246) 144 1,277 Increase (decrease) in accrued directors' and officers' retirement benefits 11 (19) (169) Increase (decrease) in asset and liability for retirement benefits (69) (166) (1,473) Interest and dividend income (45) (48) (426) Interest expense 67 55 488 (Gain) loss on sales of investment securities (31) (0) (3) (Gain) loss on redemption of investment securities ー (46) (408) (Gain) loss on sales of fixed assets (40) (40) (355) (Gain) loss on revaluation of investment securities ー 178 1,579 Loss on disposal of fixed assets 136 58 515 (Increase) decrease in notes and accounts receivable, trade (2,106) (1,183) (10,494) (Increase) decrease in inventories (314) (416) (3,690) Increase (decrease) in notes and accounts payable, trade 3,321 (105) (931) Increase (decrease) in accounts receivable, non-trade 880 250 2,218 Increase (decrease) in accounts payable, non-trade (2,399) 248 2,200 Other 131 462 4,098

Subtotal 588 2,402 21,308 Interest and dividends received 46 48 426 Interest paid (62) (54) (479) Income taxes paid (328) (436) (3,868)

Net cash provided by (used in) operating activities 243 1,959 17,378 Cash flows from investing activities

Payments into time deposits (44) (39) (346) Proceeds from time deposits 40 49 435 Purchases of fixed assets (2,480) (1,821) (16,154) Proceeds from sales of fixed assets 159 62 550 Payments for disposal of fixed assets ー (29) (257) Purchases of intangible fixed assets (134) (13) (115) Purchases of investment securities (25) (218) (1,934) Proceeds from sales of investment securities 50 0 0Proceeds from redemption of investment securities ー 68 603 Payments for execution of loans (25) (20) (177) Collection of loans receivable 24 47 417

Net cash provided by (used in) investing activities (2,434) (1,914) (16,979) Cash flows from financing activities

Increase (decrease) in short-term loans payable 5,395 487 4,320 Proceeds from long-term debt 800 1,950 17,298 Payments of long-term debt (1,394) (1,408) (12,490) Purchases of treasury stock (1,575) (1) (9) Proceeds from sales of treasury stock 24 ーーDividends paid (559) (329) (2,918)

Net cash provided by (used in) financing activities 2,690 697 6,183 Effect of exchange rate changes on cash and cash equivalents (164) 136 1,206 Increase (decrease) in cash and cash equivalents 335 878 7,789 Cash and cash equivalents at beginning of the year 10,668 10,011 88,805 Cash and cash equivalents at end of six months and the year ¥ 11,003 ¥ 10,890 $ 96,603 Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ￥112.73 = U.S. $1.00.

Consolidated Statements of Cash FlowsSMK Corporation and Consolidated Subsidiaries

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5-5, Togoshi 6-chome, Shinagawa-ku, Tokyo 142-8511, JAPANTelephone: 81-3-3785-1111 Fax: 81-3-3785-1878

https://www.smk.co.jp/

Shares and Shareholders

Officer Introduction

Corporate DataName SMK Corporation

Established April 3, 1925

Registered January 15, 1929

Primary business Manufacture and sale ofvarious parts forelectro-communication deviceand electronic equipment

Capital ¥7,996,828,021

Stock exchange listing Tokyo Stock Exchange

Administrator ofshareholders register

Mitsubishi UFJ Trust and Banking Corporation

Independent auditors Ernst & Young ShinNihon LLCTokyo, Japan

Employees (SMK-Group) 5,968

Head office 5-5, Togoshi 6-chome, Shinagawa-ku,Tokyo 142-8511, JapanTel : +81-3-3785-1111Fax : +81-3-3785-1878

Authorized shares 195,961,274Issued shares 75,000,000Number of shareholders 6,974

Major shareholders (top ten) Shares owned(1,000 shares)

Percentageof shares (%)

SMK Cooperating Company Share Holding Association 3,376 5.10

Mizuho Bank, Ltd. 3,287 4.96

Nippon Life Insurance Company 3,241 4.89

Dai Nippon Printing Co., Ltd. 3,200 4.83

The Bank of Tokyo-Mitsubishi UFJ, Ltd. 2,508 3.79

SMK Employees Share Holding Association 1,922 2.90

Mitsubishi UFJ Trust and Banking Corporation 1,800 2.72

The Showa Ikeda Memorial Foundation 1,500 2.26

Japan Trustee Services Bank, Ltd.（Trust Account） 1,441 2.18

Terutaka Ikeda 1,420 2.14

DirectorsPresident,Chief Executive Officer andChief Operating Officer Yasumitsu IkedaDirector and Executive Deputy President,Chief Technology Officer Yoshiyuki Kaku

Director and Executive Vice President Mikio Wakabayashi

Director and Executive Vice President Paul Evans

Director Toshio Nakamura

Director Kaoru Ishikawa

Auditors

Auditor and Chairman of Auditors’ Meeting Tetsuya Nakamura

Auditor Naru Nakashima

Auditor Ichiro Shimizu

Auditor Morikazu Fukui

Corporate Executive Officers

Executive Vice President, Chief Financial Officer Kohei Ohgaki

Executive Vice President Shigechika Yanagi

Vice President Hideo Matsumoto

Vice President Hiroshi Miyakawa

Vice President Takemi Ishibashi

Vice President Masanobu Ikeo

Vice President Mitsuhiko Goto

Vice President Tetsuo Hara

Vice President Mitsuyuki Masubuchi

Vice President, Chief Information Officer Hiroshi Usami

Vice President Atsushi Obinata

Vice President Fumikazu Hata

Note: SMK holds 8,749 thousand shares of treasury stock, but these are excluded from the above list. Figures for percentage of shares are calculated excluding the treasury stock.

*The Bluetooth® word mark and logos are registered trademarks owned by Bluetooth SIG, Inc. and any use of such marks by SMK Corporation is under license.*ECHONETLite is a trademark of the ECHONET CONSORTIUM.*USB Type-CTM is a trademark of USB Implementers Forum.*Other products and company names listed in this report are the registered trademarks or trademarks of their respective holders.

Corporate Information(As of September 30, 2017)

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Documents

SEMI ANNUAL REPORT 2017 - SMKHuman Machine Interface (HMI) technology for the realization of Home Automation, and miniature mounting, waterproof and precision molding technologies